MGT 3412
FALL 2013
Fundamentals of Investments
Instructor: Dr. Rossitsa Yalamova
Email: rossitsa.yalamova@uleth.ca
CFMRT coordinator:
Clayton Varjassy / Lynda Thai-Baird (M-2101),
Office: M4133; Tel: (403) 380-1899
Office hours: MW 1:30–2:50
Class: M2044: MW 10:50 - 12:05
Course Prerequisite: MGT3040 and ECON2900/STAT2780
Goals
To provide students with a good understanding of the operation of security markets, the types of securities
traded in them and the theory, concepts and models underlying investment analysis and management in
preparation for more advanced study.
Course Objectives
This course is designed to provide students with a sound overview of the investment management in Canadian
Capital Markets. Throughout the course theory and practice will be emphasized within the framework of the
portfolio management process. It describes the financial markets and the instruments traded in them. Content
includes valuation of stocks and how shares are traded in the equity market; concepts of risk and return,
diversification and optimal portfolio formation; fixed income securities, options and futures; valuation and
management of fixed income securities, options and futures and simple techniques of hedging risk. Where
relevant, the course makes use of current media events to discuss the foregoing topics based on finance theory.
Course Format
The format of the course will be an interactive-lecture/discussion, assignments and examinations. This means
that students are expected to participate in class, and success in this course will depend on your studying the
material before each class meeting. Class attendance is mandatory. Homework is not collected, but students
not attempting the end-of-chapter problems have historically done very poorly on exams.
Learning Outcomes
Upon successful completion of the course students will be expected to:
 Describe the major financial markets and financial instruments in Canada
 Demonstrate knowledge of the theory underpinning risk and return both for individual securities and
portfolios
 Demonstrate knowledge of the basics of security asset pricing
 Recognize and understand the principles underlying risk management and derivative securities
 Develop the ability to reason out investment issues for themselves and thus be better prepared when
making real world investment decisions
Course Material
1. Textbook- Investments, (Second Edition): K. Cuthbertson and D. Nitzsche; Published by Wiley ;
ISBN: 978-0-470-51956-1
2. Financial Trading System (FTS) - FTS is a web-based software package that allows you to participate
in financial markets using real time data and various cases. All students will have access to this
software. The Real Time FTS Trader operational manual is available in the Trading Room. It is also
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posted online here: http://www.uleth.ca/management/special-services/trading-room/additionalresources Two Real time trading projects (#1. How Securities are Traded, #2 Risk and Return) will be
assigned as per schedule.
3. Rotman Interactive Trader (RIT): is an application that simulates a stock exchange and allows users to
transact financial securities with each other on a real-time basis. The user-friendly and transparent
interface has been designed specifically to facilitate the learning experience. Users will be able to see
each step of transaction process occur as they submit their orders to the market and trade with one
another.Two Interactive Markets Trading cases will be assigned as per schedule
4. Other readings - will be assigned and distributed occasionally, as deemed necessary to enhance
learning
Description
The purpose of this course is to introduce the student to the theory and practice of portfolio management.
Topics will include evaluation of equity securities, bonds, and international investments. The course builds
upon the material that was covered in FIN 3040 and FIN 3470. Specifically, we will cover efficient markets
theory, modern portfolio theory, asset pricing models, portfolio management strategies, and portfolio
performance evaluation. Attention will be given to techniques used in building, managing, and evaluating the
performance of portfolios of securities within the constraints faced by institutional investors. Equity portfolio
construction will be analyzed through problems, assignments, and the study of research findings. Bond portfolio
management techniques will also be presented. Strategic and tactical asset allocation decisions will be discussed
within the framework of institutional portfolio management.
A short test (20 minutes) will be given as per schedule below (the first test will be given on September 16,
2013) to assess your performance on the materials assigned and/or covered in class in the preceding weeks.
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In-class tests are on: September 16, September 25, October 9, October 23, November 6, and November
20, 2013.
Trading project Risk and Return: (start on September 11) is due on September 25
Interactive Trading Case: EV2 - DDM Valuation October 23/30 (trail/for grade).
Trading project: How Securities are Traded: starts October16 (due on November 18)
Interactive Trading Case: FI2 - Coupon Bonds November 13/18 (trial/for grade).
This scheme should help you in developing a steady work habit throughout the course. If you should miss a test
without a legitimate excuse, you will be denied a make-up and get a score of zero. If you are granted an
opportunity for a make-up, secure an appointment with me ASAP so that the make-up may be taken within a
week's time. You must write the test during the assigned time in the class. A total of 6 in class tests will be
given during the term and ALL will be counted towards your grade distribution (Total 50%). Each project
would count 5% (Total 10%) and trading cases would count 5% each (Total 10%). In addition, class attendance
and participation will worth 10% of your final grade. An exam (20%) is scheduled on December 4, 2013. Note:
In order to pass the course you must submit the projects assigned. Failure to complete and submit any of the two
assigned projects would be considered a failure in the course (In other words the two trading projects are
mandatory for students to complete and submit to the instructor for grading in order to pass this course).
There will be no final examination. All tests are closed-books and closed-notes. However, you are allowed to
bring a financial calculator, and tables for Interest Factors (PVIF, FVIF, PVIFA, FVIFA) during tests, if
necessary. A formula sheet is permitted during all tests. You must not write any commentaries and/or add any
example or solutions on the formula sheet. The formulas that are numbered in the text are only allowed to be
brought in during tests. Any deviations from this practice would be considered cheating and will be dealt with
according to U of L calendar policies. All tests must be submitted to the instructor before you leave the
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classroom; otherwise a grade of zero will be recorded as your score. All university of Lethbridge calendar
policies, including academic offences and disciplinary procedures, will be enforced. Plagiarism of any form
during tests, interactive trading and in completing the projects will not be tolerated.
IMPORTANT NOTES:
1.
The textbook is widely used in similar university/college level courses across North America and
abroad. There are questions and problems at the end of each chapter for you to practice. I strongly
recommend that you attempt some or all of the questions and problems at the end of each chapter. You
can also check with me if there are any questions pertaining to their solutions.
2. You must not use your cell phones and text message during class time. You can use designated
computers for activities related to this course during the class time (NO E-MAIL Student using e-mail
during class automatically receives 0 for attendance and participation).
OPEN LAB HOURS
The Centre for Financial Market Research and Trading (CFMRT) is available for you to use for projects and
assignments whenever there are no classes in session. Please refer to the calendar posted next to the door or
online at: http://www.uleth.ca/management/CFMRTcalendar for available times.
Examination:
6 in-class Tests
2 interactive trading cases
2 FTS Trading Projects
Class attendance and participation
Final Exam
50%
10%
10%
10%
20%
The letter grades will be assigned according to the following scheme:
Grade Percentage
A+
95-100
A
90-94
A86-89
B+
B
B-
82-85
78-81
74-77
C+
C
C-
70-73
66-69
62-65
D+
D
F
58-61
50-57
00-49
COURSE SCHEDULE:
 Please check carefully the dates for project start and due dates. Also mark your calendar for test dates,
project due dates and the Rotman Interactive Trading cases tests.
 It is expected that you read assigned chapters prior to attending class as well as browse and study the
recommended websites and the RIT and FTS manuals.
September 4 Administrative issues; ethics and suitability; Understanding Investments;
The Investment setting FTS Trading project #1 Risk and Return Discussion
Assignments:
 Course Syllabus
 Chapter 1, pp. 3-18. Markets and Players
 Chapter 2 Raising Finance pp.20-37
 http://www.marketwatch.com/news/
 www.smartmoney.com - includes a glossary of financial terms
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http://walstreetcity.com
http://finance.yahoo.com
CNN/Money Magazine’s site: http://money.cnn.com
click on money 101 under Financial Tools and then click on Basics of Investing.
For more on interest rates, exchange rates, Government of Canada securities see:
http://www.bankofcanada.ca
September 9 Financial Instruments and Trading
Assignments:
 Chapter 3 pp. 39-62. Financial Instruments
 Chapter 4 pp.63-72 Trading Securities
 http://www.bloomberg.com/
 http://money.cnn.com/data/markets/
 http://www.tsx.com/
 http://www.nyse.com/
 http://www.cme.com/
 http://www.cbot.com/
September 11 Valuation techniques and Cost of Capital/ Project 1 starts
Assignments:
 Chapter 6, Valuation techniques; pp. 85-108.
September 16 TEST# 1 (Chapters 6)
Assignments:
 Chapter 7 Cost of Capital; pp. 109-124.
September 18 Asset Returns and Portfolio Theory
Assignments:
 Chapter 9, Measuring Asset Returns; pp. 153-188.
September 23 Mean Variance Optimization
Trading project: Risk and Return is due
Assignments:
 Chapter 10, Portfolio Theory pp. 189-220.
 http://pages.cs.brandeis.edu/~magnus/stocks/node3.html
 http://pages.cs.brandeis.edu/~magnus/stocks/node6.html
 http://pages.cs.brandeis.edu/~magnus/stocks/node7.html
September 25 TEST#2 (Chapters 9 and 10)
Mathematics of Portfolio Diversification; Review of Statistics/ Project 1 ends
Assignments:
 Review: mean, standard deviation; Normal distribution; Probability
September 30 Finance Theory
Assignments:
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Chapter 12, Single Index Model; pp. 239- 264.
http://home.znet.com/schester/financial_advice/market_efficiency.html
http://www.westga.edu/~bquest/2002/market.htm
October 2 Introduction to Portfolio Management:
Assignments:
 Mean variance optimization
 Minimum variance portfolio CAPM and SML
October 7 Risk measures Total vs. Systematic
Assignments:
 Chapter 13
October 9 Test #3 (on Chapter 12 -13)
Efficient market and Behavioral Finance
Assignments:
 Chapter 15
 https://www.canada.etrade.com
October 14 Thanksgiving
October 16 Company Analysis and Stock valuation / Project 2 starts
Assignments:
 Chapter 14 pp.291 - 314.
 http://www.marketresearch.com/VHP/Company/default.asp?categoryid=48
 http://www.lordabbett.com/usa/insights/article.jsp?OID=15863
 http://www.finpipe.com/equity/stockval.htm
October 21 Predicting Stock Returns
Assignments:
 Chapter16 and chapter 17
 Equity Portfolio Management Strategies
October 23 Test #4 (Chapter 14, 15, 16, 17)
Assignments:
 http://www.smartmoney.com/brokers/
Rotman Interactive Trading Case – EV2 DDM Valuation Asset Pricing (trial run)
October 28 Bond Fundamentals
Assignments:
 Chapter 20, pp. 439- 465.
 http://money.cnn.com/data/bonds/
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October 30 Money Markets and Bond Markets
RIT Case – EV2 DDM Valuation Asset Pricing (for grade)
Assignments:
 Chapter 19, pp. 417-438
 Chapter 20 pp. 439- 464
November 4 Interest rates term structure
Assignments:
 Chapter 21, pp. 465-481.
November 6 Test #5 (on Chapters 19, 20, 21)
Bond Portfolio Management Strategies
Assignments:
 Chapter 22, pp. 481- 506
November 11 Holiday
November 13 RIT Case – FI2 Coupon Bonds (Discuss)
An Introduction to Derivative markets and securities
Assignments:
 Chapter 27, pp. 359-405.
November 18 RIT Case – FI2 Coupon Bonds (for grade) Project 2 ends
Derivative Valuation Theoretical Background
Assignments:
 Chapter 24, pp. 533-599.
 Chapter 26 pp. 589-622
November 20 Test #6 (on Chapter 22, 24, 26, 27)
Discussion of trading cases and projects
November 25 Applications of Derivatives for Portfolio Insurance and Hedging
Assignments:
 Prepare a discussion of current financial news related to use of derivatives
 Chapter 29, Performance of Mutual Funds
November 27 Evaluation of Portfolio Performance:
Assignments:
 Chapter 23, pp. 507-532.
December 2 Review
Guest Speaker
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December 4 Exam
Physical or Learning Disabilities:
Please let me know if you have a physical condition or learning disability that may impact your academic
activities in this class.
Academic honesty
You are expected to adhere to the highest professional and ethical standards. Please, become familiar with the
University Policy on academic dishonesty. Those caught cheating will be penalized to the maximum permitted
by University policy, which includes a final course grade of “F” and referral to the Dean for disciplinary action.
You are allowed to prepare a formula sheet for the exams. “I had it wrong on the formula sheet” is not an
excuse. You can build up your formula sheet and use it for unexpected fail/pass quizzes at the beginning of any
class. You are expected to attempt the end of chapter problems and seek instructor’s help in class or during
office hours.
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